Japan’s 10-year government bond yield rallied above 2.3% on Tuesday, marking its highest level in nearly three decades amid concerns over Prime Minister Sanae Takaichi’s proposal to cut the sales tax on food to 0%. Investors fear the plan could increase fiscal risk, as it remains unclear how the government would offset the lost revenue. Takaichi also announced she will dissolve parliament at the end of the week and hold a general election on Feb. 8, in which her party is expected to secure more seats and push forward fiscal expansion and other policies. Market attention is also on the Bank of Japan’s policy meeting this week, where rates are widely expected to remain unchanged following December’s hike. Investors will watch closely for hawkish signals from BOJ Governor Kazuo Ueda amid speculation of a potential rate increase in June.
